The S&P/ASX 200 Accumulation Index was down 0.02% during the month.
The Australian market lagged global equity markets, weighed down by the defensive sectors and the miners who suffered on the back of lower commodity prices. Global equity markets rallied as geopolitical tensions eased somewhat and German Chancellor Merkel’s alliance won a fourth term in government.
Emerging markets underperformed developed markets for the first time in 2017. The US, Europe and Japan led gains. The Euro Stoxx 50 was up 5.2% while in Japan the Nikkei 225 was up 4.3% during the month. In the US, the S&P 500 finished up 2.1%. The UK’s FTSE 100 was the laggard, down 0.7%.
During the month, the Reserve Bank of Australia (RBA) maintained the cash rate at 1.50%, noting that the improvement in global economic conditions had continued. The RBA believes that domestic business conditions will continue to improve further with faster growth in non-mining business investment expected. The RBA sees the local labour market continuing to improve however they remain concerned over the outlook for consumers as they face low wages growth and elevated levels of household debt.
The latest domestic economic data was mixed. June quarter GDP recorded a 0.8% gain, which was below consensus expectations but higher than the 0.3% growth in the previous quarter. Retail sales growth for July was flat. Employment for August grew a stronger than expected 54,200 positions, with the majority of growth in full-time jobs. The unemployment rate remained steady at 5.6% in August. The NAB business conditions survey rose to +15 however the confidence survey fell to +5 (from +12 the previous month).
In stock specific news, Rio Tinto announced an additional USD 2.5 billion expansion to its previously announced buyback program of USD 1.5 billion. Fortescue Metals announced its CEO, Nev Power, will retire in early 2018. A replacement has not been announced.
Sector returns were mixed during the month. The Healthcare sector was the best performer, up 2.2%. Energy (1.2%), Financials ex-REITs (1.1%) and REITs (0.5%) also outperformed the broader market. Sectors that lagged included Consumer Discretionary (0.0%), Industrials (-1.2%), Materials (-1.5%), Consumer Staples (-1.9%) and Utilities (-3.7%). Telecommunications (-4.6%) was the worst performer for the second consecutive month.
The Healthcare sector was buoyed by Fisher & Paykel Healthcare (9.5%) and Cochlear (2.8%).
The Energy sector benefitted from the rising oil price. Key contributors included Santos which was up 6.9% and Oil Search (5.1%). Beach Energy was up 23.1% during the month after announcing the acquisition of Lattice Energy, a conventional upstream oil and gas business, from Origin Energy.
Financials ex-REITs outperformed, largely driven by the banks. National Australia Bank (4.3%) and Westpac (2.1%) were the key contributors, while the Commonwealth Bank (-0.7%) continued its underperformance of the previous month. The major insurers had mixed results with QBE Insurance (-4.1%) the worst performer. Given QBE’s global exposure to recent natural disasters affecting parts of the US, Puerto Rico, Mexico and the Caribbean, the stock was sold off on expectations that QBE will incur losses.
The Materials sector underperformed, largely due to lower commodity prices. Key commodities such as gold and iron ore fell during September. Key detractors included BHP (-4.0%), Fortescue Metals (-10.9%) and Newcrest Mining (-7.6%). One of the few major miners to buck the trend was South32 (14.8%), where the stock benefitted from underlying strength in key commodity exposures of aluminum, alumina and manganese.
The Consumer Staples sector was also lower, dragged down by Wesfarmers (-3.0%), Woolworths (-1.1%) and Treasury Wine Estates (-5.5%).
The Utilities sector underperformed in September, attributable to the sell-off in bond yields. AGL Energy (-2.5%) APA Group (-5.7%) and Spark Infrastructure (-3.9%) were the major detractors.
The Telecommunications sector was again the worst performer, dragged lower by sector heavyweight Telstra (-4.9%). TPG Telecom (-11.3%) also detracted, having released mixed FY17 results, with FY18 guidance disappointing as the company cut its dividend and warned of margin pressures.
